Shome committee to examine indirect transfer of Indian assets by non-resident tax payers

September, 03rd 2012

The government on Saturday has expanded the scope of the Parthasarathi Shome committee, enabling it to look into tax treatment of cases that involve indirect transfer of Indian assets such as the Vodafone-Hutchison deal in 2007.

The move came after a parliamentary panel blamed the retrospective amendments to the Income-Tax Act, along with the General Anti-Avoidance Rules (GAAR), for affecting investors sentiments.

Earlier, the prime minister had constituted the Shome panel to examine GAAR, proposed to be made effective from April 1, 2013, in the budget.On August 6, the committee was also asked to examine taxation of non-resident transfer of assets where the underlying asset is in India, in the context of foreign institutional investors (FIIs) operating in India purely for portfolio investment. The Finance Ministry on Saturday announced expanding the terms of reference of the committee to include all non-resident tax payers instead of only FIIs.

The Standing Committee on Finance has presented its report on Current Economic Situation and Policy Options to Parliament on August 30. The Committee has inter alia found that the investment climate in the country has suffered a serious setback and investors confidence has been hit mainly because of the concerns over the impact of retrospective tax laws and new GAAR, the ministry said in a statement.

In the Finance Act, 2012, the government had made an amendment to bring indirect transfer of shares, wherever the underlying asset was in India, under the purview of taxation. The clarificatory amendment came into effect retrospectively from 1961 when the Income-Tax Act was enacted.

This amendment, along with a validation clause, empowered the government to revalidate a tax demand in cases like Vodafone where the Supreme Court had already decided in favour of the company. The tax department, however, has not yet sent a tax notice to Vodafone restoring its tax demand of about Rs 12,500 crore.

Finance Minister P Chidambaram had last month said the government would relook at retrospective amendments to the Income-Tax Act and corrective measures to regain the confidence of stakeholders.

I have also directed a review of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the tax departments and the assesses concerned, he had told a press conference.